Australias Economic Growth in the Tourism Industry - Case Study Example

Marketing plan (Part B) By Student’s name Code+ course name Professor’s name University name City, State Date Executive Summary Australia is one of the most explored countries in the world today. The country has many heritage, as well as environmental sites. Among the fascinating outlooks in Australia include the hanging rock, Hassan’s Wall, Echo Point, Bungle range among others. Tourism has played a key role in developing the economy of Australia. Many policies have been put in place to ensure that the natural resources are well managed to ensure that stability is achieved. This has been made possible by the development of partnerships among the stakeholders as well as having a common vision in the region. Despite this, the tourism industry is largely underutilized in Australia. This study sought to analyze the market strategy for an Australian tourism company. In so doing, it defined five main objectives namely: to be the market leader in sustainable tourism, to empower the local community through involvement and cultural appreciation, to promote recreation among the locals and international visitors who would want to visit the area, to liaise with key stakeholders in the industry in an effort to enhance tourism in Australia and to maintain a constant profitability in the sector. The tourism company will implement the set objective by pursuing a niche marketing strategy. Thus, the company will tap the underutilized resources by segmenting the overall market, setting clear goals and objectives and positioning for the competitive advantage. In addition, the tourism company will realize the set objective through value addition, boosting value addition through awareness, branding, promotions and campaigns. The company shall divide its target market into local and international tourists. The local market will further be divided into young and single travelers and family groups. The competitors established in this study were mainly local tourist companies. TABLE OF CONTENTS Executive Summary 1 1.0 Introduction 4 1.1 Background Information 4 1.2 Mission Statement 6 1.3 Objectives 6 2.0 Market Analysis 7 2.1Porters Generic Model 7 2.1.1 Threat of New Entrant 9 2.1.2 Suppliers Bargaining Power 12 2.1.3 Buyers Bargaining Power 12 2.1.4 Substitutes 13 2.2 SWOT Analysis 13 2.2.1 Strengths 14 2.2.2 Weaknesses 14 2.2.3 Threats 14 2.2.4 Opportunities 15 Strengths 16 Opportunities 16 Weaknesses 16 Threats 16 3.0 Customer Segmentation 17 4.0 Competitive Analysis 19 5.0 Selected Marketing Strategy 21 5.1 Products/Services 21 5.2 Price 22 5.3 Distribution (place) 22 5.4 Promotion 22 6.0 Short and Long-Term Projections 24 6.1 Break-even Analysis 25 6.2 short-term projections 26 6.3 Long term projections 26 7.0 Conclusion 29 References 29 1.0 Introduction 1.1 Background Information One of the factors that contribute to Australia’s economic growth is the tourism industry. This has been made possible by the existence of a government sector that is efficient, a competitive business sector, and a labor market that is flexible. The government has set forth policies that ensure the tourist industry is vibrant. The tourism industry has also played a prominent role in the creation of jobs, regional development, and export earnings. Tourism contributes significantly to the Gross Domestic Product of Australia. In the services sector, tourism has been the biggest export earner. Australia is one of the most explored destinations throughout the world. The country has several fascinating ecological sites. Among the country’s beautiful sites include deserted beaches, wind-sculpted rocks, dramatic cliffs, Sahara dunes, rivers among others. The country has also been flourished with wildlife and heritage. There are more that 200 national parks and more than 900 native plants. Among the tourism activities in the country include fishing, whaling traditional foods and wines among others. According to Lonely Planet (2009), the country is also peaceful, and this makes Australia be home to thousands of visitors from various countries across the globe. In recent years, tourism sector in Australia has recorded an immense growth. According to the 2010-2011 financial year report by the Australian government, tourism industry earned over 94.8 billion dollars and was ranked first in the services industry (OECD, 2012, p. 120). During this period, tourism contributed more than 7 % of the country’s overall export earnings. Domestic tourism played a key role in enhancing the Australian tourism industry. A large number of international tourists stay in urban areas, and therefore, their expenditure does not always promote the larger market. Domestic tourists, this fills this gap by touring the remote areas. That notwithstanding, the tourism industry has faced several challenges that are hindering the realization of its full potential. One of the greatest challenges facing the tourism industry in Australia is the harsh climatic conditions. Climate change influences both the behavior and demand. Some of the main issues that can affect tourism in Australia include the rise in sea level, biodiversity, changes in rainfall, and changes in the fire ecology. Also, there have been massive displacements, land ownership issues, pollution, habitat annihilation among other issues in recent years and this has caused conflicts in the land. Snow, rise in sea-level and other climatic conditions normally influence visitors’ perceptions, motivations and destination choices. Most consumers are forced to visit a destination or see an attraction before it is lost as a result of climate change. To address these challenges, the federal government has set up measures aimed at ensuring that the tourism industry continues to be the leading sector. Among the measures taken by the Australian Federal Government include encouraging the preservation and conservation of the cultural and natural heritage. The Federal government has developed a draft that will ensure that the tourism industry is more sustainable. The government has focused on niche markets and the business yields to achieve sustainable tourism growth throughout Australia. Other measures include the diversification of the product base, addressing the financial and regulatory impediment and enhancing the skill levels and industry standards. The government has also introduced stiff measures in order to discourage illegal poaching in Australia. The Tourism Division has carried out liaison and research functions with major stakeholders in an effort to enhance tourism in Australia. Indeed, the Tourism Division has ensured that structural reforms are put in place in order to ensure Australia becomes one of the ideal tourist destinations across the globe (Gruda, Vries & Marsman, 2011, P.16). 1.2 Mission Statement The company aims at becoming the market leader in the Australian tourism industry by providing visitors with panoramic experience that relieves the hustle and bustle of the harsh life through adoption of state of the art technologies, and taking into consideration economic and environmentally sound practices. 1.3 Objectives To be the market leader in sustainable tourism, in Australia. To empower the local community through involvement and cultural appreciation. To promote recreation among the locals and international visitors who would want to visit the area. To liaise with major stakeholders in the industry in an effort to enhance tourism in Australia. To maintain a constant profitability in the sector. 2.0 Market Analysis The company shall carry out a market analysis in order to gain an insight on the attractiveness and the dynamics of the tourism industry. An analysis of the market allows marketers to identify the key success factors, threats, opportunities, trends and to create strategic questions that can guide information gathering and analysis. The tourism company will be able to predict how the Australian tourism market is going to develop in short-run and long-run by conducting a market analysis. The company will use the Porters Generic Mode and carry out a SWOT analysis in order to measure the market size, and also identify the future trends. 2.1Porters Generic Model Porter was determined to provide organizations with a framework through which they could analyze competition and thereafter, determine their strategies. The Porters Generic Model examines the power behind the five opposing competitive forces that determine the firm’s long-term success and competition (Mollona, 2010, P.152). According to Porter, the five forces can shape the attractiveness of an industry. The forces as suggested by Porter includes conflicting firms, threat of substitutes, new market entrants, the ability of buyers and suppliers to exercise bargaining power in the market. Porter Generic Model is a framework used business organizations to gain a competitive edge over competitors in respective markets. This is achieved by examining the market environment and designing a strategy that will help to gain a position that is strategically desirable (Kossowski, 2007, p. 39). Porter’s Five Forces Obtained from 12manage.com 2.1.1 Threat of New Entrant The threats of new entrants entail the obstacles that prohibit firms from joining an industry. Micheal Porter came up with several obstacles that prohibit entry. Among the obstacles include economies of scale, the capital requirements of entry, product differentiation, availability of distribution and supply channels, price and advertising barriers and government policy. (i)Economies of Scale The booming of Australian’s tourism industry has attracted many participants. Despite the economic meltdown and numerous challenges, the number of tour firms in Australia has increased significantly over the past few years. This is due to the fact that there are few obstacles to entry. The tour company will thus penetrate the Australian tourism market easily and provide competition to the already existing firms. As a new participant, this company will look for greater economies of scale by building self-contained accommodations, luxury retreats and lodges that provide visitors with personalized services. (ii) Product Differentiation Many tourism firms across Australia are striving to be unique by offerings exceptional services. Product differentiation has the effect of creating brand loyalty. In order to perform better than its competitors, the company shall benchmark its services to those of competition in the industry. The company shall also consider robustness for its products. Robustness provides the firm with a core competence by making it difficult for competitors to imitate. The company will achieve this through complexity i.e. managing complex activities or processes hence making it hard for competitors to imitate. By offering unique products, the company will create high entry hurdles to new entrants. iii) Capital Requirement The amount of capital required to start an enterprise plays a crucial role in determining the extent of the threat of new entrants. Thus, the lower the investment required, the more will be the threat from new entrants. Usually, the amount required to start a tourism company is relatively high. For instance, building a lodge or a visitor attraction requires huge capital investments. An organization can avoid high capital costs by employing such strategies as leasing and separating ownership from the management. The tour firm will invest huge financial resources in building lodgings and other accommodation facilities, in order to become the market leader. In addition, the company will invest in human resources (knowledge skills and employee adaptability) and intellectual property (knowledge captured in business systems, brands and patterns). This will make it difficult for new entrants to enter the market and, in so doing, provide the company with a competitive edge over its rivals. (iv) Government policy The government can limit the number of firms that should participate in an industry. The government influences market participants through monopoly. Usually, firms that have the ability to control prices in the industry locks out new entrants. The government also creates barriers to entry through patents and copyrights. The licensing of businesses also restricts new firms from joining the industry (Saxena, 2009, p. 64). The Australian Federal Government has created laws which need to be adhered when opening new businesses. For instance, new entrants in the tourism industry are required to have a license in order to operate. These rules can hinder a company from joining the market. In this regard, the company will follow the regulations set by the government to enter the tourism market. (v) Accessibility of supply and distribution channels Organizations should create good contact and network with distributors and suppliers in order to attain a competitive edge over rivals. Suppliers and distributors play a pivotal role in ensuring that the products reach consumers. Thus, lack of contact with suppliers and distributors can be a barrier to entry (Pride & Ferrell, 2011, P. 459). As such, the company shall establish good contact and network in order to improve the customer services. Conclusion Based on the above aspects, it is evident that the threat of entry is low. The company will overcome the obstacles by sourcing for the required capital and establishing good contact with suppliers and distributors. The generic strategy to be adopted by this company initially will be cost leadership. In other words, the pricing objective for this company will be to maximize the quantity of units of sales and reduce costs as much as possible in order to enjoy long-term profits. The company will offer various types of discounts including seasonal discount, cash discount, trade discounts and promotional discounts. The rates of discounts to be offered will be determined after the company launches its operations. This will help to ensure that the company penetrates effectively in the price-sensitive local market and gain a competitive edge. With time, the company will explore the chance of replacing cost leadership strategy with a differentiation strategy by introducing premium products and services which will be charged at higher costs that will be comparable to that of competitors. 2.1.2 Suppliers Bargaining Power In a tourism industry, there are several requirements such as labor supply and raw materials. These requirements lead to an association between buyers, on one hand, and the company that provides the raw materials for the production of goods. Powerful suppliers have the effect of exerting power on the tourism industry (Pender & Sharpley, 2005, P.56). For instance, furnishing companies may sell their products at high prices in order to make huge returns. Also, management and training service providers may charge higher fees in cases where there exist no close substitutes. Thus, as mentioned previously, tourism companies should maintain good relationships with suppliers in order to realize their full potential. In Australia, there are various firms offering services needed by tour companies. This implies that the bargaining power of suppliers is relatively weak, and the tour company will have the possibility of negotiating better deals. 2.1.3 Buyers Bargaining Power The bargaining power of buyers refers to the power that consumers have relative to the power of producers in a given market (Bennett & Strydom, 2001, p. 39). Given that there are numerous tourism companies in Australia, it is possible for tourists to select the company that best meets their desired conditions such as quality products and services, fair prices, safe and comfortable accommodation facilities and hospitality services. Though the number of purchasers for tourism products and services is high, there is a low switching cost from one tourism company to another (James, 2011, p. 8). Most tour companies in Australia guarantee good services, destination, recreational areas and environments. However, tourists looking for fair prices may opt for this particular company since it plans to offer fair prices compared to competitors. From this perspective, the bargaining power for the clients targeted by this company is moderate. 2.1.4 Substitutes The threat of substitutes emanates from the likelihood that consumers may use other products of services, other than the existing ones, to meet the same needs (Bennett & Strydom, 2001, p. 40). The threat of new substitutes is real in the Australia’s tourism industry. Substitute for travel services could be private or private transportation means towards desired destinations. Substitutes for accommodation services in this industry include guest houses, hotels and dorms (James, 2011, p. 8). The likelihood of consumers to opt for substitutes is largely influenced by the differences in the prices, quality of services, the facilities provide and the value derived from the products and services of the tourism companies and the alternatives. 2.2 SWOT Analysis SWOT analysis is a strategic planning method useful for evaluating an organization’s strengths, weaknesses, opportunities and threats. SWOT analysis seeks to determine the scope upon which the firms’ strengths, as well as weaknesses, can deal with the changing business internal environment. A SWOT analysis thus must begin by identifying the desired objectives to be accomplished. 2.2.1 Strengths According to Hitt Ireland & Hoskisson( 2010), strengths refers to something a company is good at doing or characteristics that gives it enhanced core competence, such as physical assets, brand name, original intellectual property right, highly motivated workforce among others. The tourism company has significant strengths and competitive advantage in the following areas: effective management team, availability of capital for investment and narrow product line. 2.2.2 Weaknesses Hitt, Ireland & Hoskisson (2010), in their studies, defined weaknesses as the inadequacies that decelerate a firm from achieving its goals. Some of the major weaknesses of the tour company include the following: The narrow product line may hinder the company from meeting its marketing objectives. The company can incur huge losses if customers switch to competitors’ products. 2.2.3 Threats Hitt, Ireland & Hoskisson (2010), defined threats as factors which inhibit a company’s ability to achieve its objectives. Threat may inhibit growth, reduce productivity or erode competitive advantage. With regards to the tourism company, the following are the main threats that can prevent it from achieving its set goals; Massive advertising campaigns by the competitors and hence expanding their market share. Such rival firms spend huge amounts of money to advertise their products. Tourism is not a necessity implying that people can do without it. It is thus an inferior activity, and therefore, individual demand for the product goes down once the income increases as people tend to consume other products, which they consider being more superior. With this regard, the consumers enjoy high bargaining power, and this is a threat to the company. 2.2.4 Opportunities Opportunities refer to aspects which enable a firm to perform exceedingly well and achieve its goals (Hitt, Ireland & Hoskisson, 2010). Opportunities play a major role as far as the firm’s growth and profitability is concerned. The following are the main opportunities of the tour company; An increase in the Australian population over the past decade has increased the company’s sales volume. Young and educated people in Australia are the largest consumers of tourism products. This implies that, with the growing number of young professionals, the company’s market share is bound to increase. Young professionals also believed to have a high disposable income and therefore, the company is in a better position to increase its sales volume. SWOT ANALYSIS Strengths -Effective management team -Capital access -Narrow Product line Opportunities -Increase in population Weaknesses -Narrow product line Threats -High Advertisement budgets -High bargaining power 3.0 Customer Segmentation The tourism company will place offices in Melbourne city. Melbourne is the capital of south-eastern state and the second largest city in Australia. It is situated at the head of Port Phillip Bay. It is known as the Australia’s cultural capital, and it offers a variety of shopping places, galleries, mediums and theatres, (Llewellyn et al, 2012, p. 663). In addition, it has beautiful gardens and large parks. Melbourne attracts tourists who come to use it as a gateway for exploring the popular large parks such as the Grampians National Park, as well as the beautiful gardens. The city has an estimated population of approximately 3.8 million people (Australian bureau of statistics, 2011). It is the second most populous city in Australia after Sydney. Australian bureau of statistics 2011 projects that the city will be the most populous city by 2039 due to larger levels of immigration into the city. The target customers of this company are expected to be comprised of three distinct groups: Young Australians between the ages of 18 and 35 and singles on holiday/recreation travel, attending events for sporting contests, music festivals, arts and cultural performances or to view beautiful sceneries in Australia. This group is expected to comprise of individuals with low-average-to high incomes. They are expected to be more price-sensitive. Australian couples and families travelling around for recreational reasons, to view beautiful sceneries or to visit friends and relatives. This group is expected to comprise of individuals with access to average to high levels of incomes. They are expected to seek for quality, but inexpensive services and products. Foreigners visiting Australia to view attractive scenarios, on business travel or to visit friends or relatives. Individuals in this segment are expected to have access to high levels of incomes. They are expected to seek for premium products and services. 4.0 Competitive Analysis There are numerous competitors in this company. In fact, there are about 4,500 tourism companies, and agencies in Australia and approximately 176 are in Melbourne (Accommodation and travel, 2011). Some of them will compete directly with this company. However, the number of potential clients for this company is also huge, and it has an opportunity to establish a client base and compete with other tourism companies and agencies. Below are some of the competitors based in Melbourne: Friends travel: located at Little Collins street MBF Overseas Travel Insurance: located at Kilda Rd Melbourne Harley Tours: located at Victoria Street Abbotsford Tick It travels: Little Collins Travman Tours : located at Queen Street The strength of the above tour and travel companies (just like others in Melbourne) is that they have operated for a long time and already have established client base. One remarkable weakness with most of them is that the fact that their services are a bit expensive. Most of them offer different services compared to those that will be offered by Enjoyable Travel Agency (Tourism in Australia, 2011). This company will have a competitive advantage over these competitors brought about by: Its cost leadership strategy. Location in the wealthiest suburbs of Melbourne's and thus, will be able to cater travel needs of a huge number of corporate and private clients Excellent working teams who are devoted to their responsibilities The company will also work towards providing clients with superior products and services. 5.0 Selected Marketing Strategy The tourism company will focus on creating and maintaining its customers. Thus, its marketing strategy will focus on how to achieve this goal as it builds its reputation in Australia. 5.1 Products/Services The tourism company is going to sell both inbound and outbound retail travel services, targeting recreational and business travellers. Additionally, the company will be offering room accommodation services with safe and comfortable facilities. The company is going to exploit the opportunity and offer professional services and consultations to travellers. Additional products and services will include destination packages, custom packages, car rentals, rail passage, airfares, pre-arranged tours and consultations among others. The company will offer differentiated travel products and services. This will be achieved through innovation of numerous products and services to suit the different consumer segments and to market them through the most effective approaches. Initially, the company will focus on inexpensive products and services with desirable qualities. This will be attractive to Australian travellers, who are likely to form the first bunch of clients. With time, premium products and services will be included in order to suit clients seeking for quality. 5.2 Price As mentioned, the pricing strategy of this company will be determined by market standards. It will initially will on maintaining a competitive pricing policy and keep the price of its services slightly below that of other travel agencies. However, as the company builds its reputation, it expects to be able to charge comparable rates to other tourism companies through offering premium products. 5.3 Distribution (place) Distribution for all marketing and promotional materials will focus the whole of Australia. Personal attention and consultation details will begin with initial in-office consultations in an office that will be located in Melbourne. Personal meetings between clients and staff will also be conducted in other places chosen by clients. The company will develop a website that will form a major distribution channel. 5.4 Promotion Products and services of this company will be promoted in various types of media including televisions, radios, newspapers, magazines and internet. The company will also hold a grand opening during the first year of opening where it will organize and sponsor athletic events including mountain bike race, 5 kilometres and 10 kilometres run and off-road triathlon. It is going to provide a variety of prizes and all employees of the company will interact with people promoting products and services of this company. Research conducted so far indicate that most of the target customers are internet users, and in fact, most of them purchase tour and travel services over the internet. Thus, the internet offers a great opportunity for this company to advertise its services and to communicate with the clients (Brown, 2010, p. 78). The company will thus develop a fully functioning website that will be fed with details about products and services and will allow clients to make online bookings. Advertisements will also be made in social media platforms such as Facebook and Twitter. The users will be able to make comments. They will also be able to post pictures of various events, give advice and tips and rate vendors. The main advantage of this strategy is that it has minimal total cost (Brown, 2010, p. 78). 6.0 Short and Long-Term Projections Preliminary estimates for short term projections indicate that this tourism company will achieve positive growth from the first year of operation, irrespective of the fact that it is a start-up business. This prediction is based on anticipated high levels of revenues which will be generated through an influx of clients who will be attracted to the pocket-friendly and reliable tour and travel services. The forecast is also based on the market analysis which has established that there is still high demand for the tour and travel products and services. Innovative and effective marketing strategies that will be adopted will play a vital role in enhancing the demand and increase average sales. The business also anticipates a positive growth in revenues and margins over the next three years. Though a bit conservative, this section presents a realistic depiction of financial position of this company during the first three years of operation. Key assumptions The market growth projections for the tourism industry in Australia are accurate The national economic conditions in Australia, which are currently favoured to travel and tourism industry, will not decline significantly in the next three years. The international conditions will remain favourable to the tourism industry for the next three years. 6.1 Break-even Analysis Break-even analysis is based on constant monthly revenues of $41,667 and variable costs of $29,667 during the first year of operation. Monthly fixed costs amount to $6,850. The break-even calculations assume a 28.8% gross margin. The calculations are as follows: Monthly projected sales: $41,667 Less: Monthly variable costs: $29,667 Gross margin: $12,000 % Gross margin 28.8% Breakeven point sales= Monthly fixed costs/%Gross margin = 6,850/28.8% = $23,785 Assuming constant monthly revenues and variable costs, the sales for this company will break even during the 10th month of operation, after making sales of $23,785. 6.2 short-term projections 6.3 Long term projections Gross Margin Projected profit and loss 7.0 Conclusion The proposed tourism company has been subjected to the most rigorous analysis, and it can be concluded that it can be viable under all realistic scenarios. This plan demonstrates that the venture is a solid new business based on real and exciting opportunities. From the market analysis, it is clear that the company has a chance to achieve and maintain a competitive edge through cost leadership, product, promotion, distribution and pricing strategies. The company will employ a cost leadership strategy to attract clients and outdo competitors. After determining the needs of the business, it is recommendable for this company to establish a strong management and operating plan that will enable it to run effectively. Though the short-term and long-term financial projections for this company are somehow conservative, they indicate that the proposed business will be profitable. In general this report identifies a viable opportunity which has a high probability of succeeding if adopted and supported with the required funding. References Accommodation and travel. (2011). ‘Travel Agents in Melbourne, VIC’ viewed 15 April 2013 from Australian bureau of statistics. (2011). Population Projections, Australia, 2006 to 2101, viewed 15April, 2013 from< http://www.abs.gov.au/Ausstats/abs@.nsf/mf/3222.0> Bennett, A & Strydom, J. (2001). Introduction to Travel and Tourism Marketing. New Delhi: Juta and Company Ltd. Brown, B. C. (2010). 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